This FTE number reflects the number of full-time, part-time, and any other active employees added together. Employers use the number of FTEs to determine if they need to file ACA.
It’s an important number to know, especially when you’re offering health benefits. So how do you determine and calculate your FTE?
How to calculate your FTE number
Let’s break this down...
Determine how many part-time workers you have. The IRS defines part-time employees as people who work no more than 130 hours a month, or less than 30 hours a week
Combine the number of hours in a month for your employees who are non-full-time employees. Do not include employees whose hours exceed 120 per month.
Divide this number by 120, this will give you your FTE count for the month.
Congratulations! You have your FTE number
ALE, and why your FTE numbers matter
The FTE number determines whether the federal government views your company as an Applicable Large Employer (ALE). To qualify as an ALE, you must have employed 50 or more employees the previous year, or a mix of full- and part-time workers that equal 50 FTEs (which is why you extend the number of hours worked even for your part-time employees).
If your company is an ALE, you’re required by theAffordable Care Act to offer group health insurance. As an ALE you also have to send in1094-C and 1095-C forms proving and describing the health coverage you offered to your employees.
FTE calculation examples
Let’s say you own a hardware store. You employ 20 full-time and 10 part-time employees. Your part-time employees assist with customers, run the cashiers, and stock shelves for 10 hours a week, while your full-times calculate needed inventory, order tools, paint, and hardware, and average 30 hours a week.
The FTE number is determined by the total weekly hours worked by part-time employees: 10 x 10 = 100
Divide 100 by 30, which gives you 3.33. Round down to 3. We’ll add our full-time employees to our number, (20 + 3) and our FTE is 23. Therefore, you are not an ALE.
Being able to consistently and accurately determine your FTE is a critical step to master when running your company. Once you’ve got your calculation dialed in, you’re one step closer to conquering the world of compliance.
ALE determination example
Looking at last year’s numbers you will be able to determine if you need to file for ACA for the current year. To do this we will need to look at our workforce size from the previous year and add the total number of full-time employees for each month and the total number of FTE each month and divide that total by 12 months. Let's put this in practice:
Your company has 40 full-time employees for each calendar month during the previous year.
Your company also has 20 part-time employees for each calendar month during the previous year, each of whom has 60 hours of service per month.
First, calculate your FTEs.
Combine hours of service for the part-time employees for a month totals 1,200 (20X60 hours)
Divide this total by 120 equals 10 (1,200/120), giving your FTE count for each month.
Add your full-time employees to your FTE for each month, which is 50 (40+10=50).
Add all months together, which is 600 ( 50X12=600).
Divide the total by 12, which is 50 (600/12 = 50).
Although your company only has 40 full-time employees, it is ALE for the previous year and will need to file ACA for the current year.
If you have further questions regarding calculating your FTE number check the IRS website for more information. The IRS may change the qualifications of an FTE so to ensure compliance, it is best practice to check their website regularly. When calculating an FTE, payroll software can help make the calculations much easier. If your business is looking for a payroll provider, schedule a demo with us.
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